The Messy Interior of a Public Pension

The ambitious, tedious, and (semi-) democratic process of
running a US public fund, via the microcosm of one investment board meeting of
the New York City Employees’ Retirement System.

(December 19, 2012) -- The chairman of the meeting has a gavel.

It is not used for hammering out “Order in the Court!” amid unruly arguments—there aren’t any—or for signaling the close of every agenda item. No, at the New York City Employees’ Retirement System’s (NYCERS) latest investment board meeting, the gavel comes down just once: When something got done.

Public pension board meetings are odd creatures. The most knowledgeable person in the room is at the mercy of a dozen or so lesser experts, there to simultaneously learn about and pass judgment on the CIO’s investment proposals. Union heads, public servants, sharp-suited asset managers, and politicians gather around a table the size of a bowling lane to give their take on questions large and small. Should we sink a quarter of a billion dollars into hedge fund X? Is it appropriate to spend public money on in-house performance bonuses? Is that manager top quartile? Are we top quartile? These are demanding, critical inquiries, and boards typically have only a few hours a month or quarter to sort through them. Yet the temptation to rest one’s eyes seems to overpower many attendees.

Even a fully-conscious board doesn’t have a hope of absorbing all the information thrown at them over the course of a meeting. NYCERS allotted two hours and fifteen minutes to:

2.) Presentations from no less than four consultants/asset management firms

3.) An in-depth lesson on infrastructure investing

4.) Decide whether NYCERS should move into infrastructure investing, and if so, how

5.) Consider replacing the real estate allocation bucket with one for real assets

6.) Review of a proposed investment policy statement for a real assets bucket

7.) Deliberate and reach a decision on whether or not to approve the policy statement, and based on what conditions

If investment board meetings were an asset class, NYCERS’ portfolio would have been 55% overweight on its time allocation when things wrapped up. Still, that seemed like the bare minimum, and a triumph of efficiency and short-windedness.

Chief Investment Officer Larry Schloss, who presides over four other New York City pension funds in addition to NYCERS, kept his remarks brief—very brief. He narrowed down the latest monthly earnings to about three points and question: October returns (0.27%), six-month returns (“North of 5%"), and approximate gains for the calendar year (14%). Then the question: “Since we just heard about the quarter, does anyone want me to go over October more? No? Alright, moving on.” And it was onto the next order of business.

The United States Senate may tolerate filibusters, but public pension boards have better things to do with their time. Like actually reading everything they’re given over the course of a meeting. The amount of paper dedicated to a single pension board meeting is staggering. When the fourth bound presentation comes around, you can’t help but feel sympathy for the trees and admin staff committed to producing those many, many reports. At a minute-and-a-half per page, it would take over nine hours to read every page I received—and that doesn’t include the much bulkier ‘Executive Agenda.’ (Half the meeting is radically transparent—NYCERS has an audio/visual team broadcasting the session live to anyone with an internet connection and penchant for pensions. But like turn-of-the-century gentleman retreating for cigars and brandy, trustees and CIOs reconvene for a closed-door ‘executive session’ after the public show is over.)

A moment of high irony arose during the board’s discussion of the real assets investment policy proposal. One man spoke up to ask Schloss, “How does ESG [Environmental, Social and Governance] fit into this? I’m not seeing it anywhere.” A flurry of page flipping ensued, as everyone rifles through the end product of clear-cutting to find earth-friendly investing guidelines.